There are more gloom and doom takes on the office market then clam shacks in New England. Not enough Class-A stock, people still working from home, billions in obsolete stock, falling valuations.
But it is possible to look on the sunny side of things, which is explicitly what Cushman & Wakefield does in its report, The Bright Side of Office: Growth Opportunities in the Urban Core.
The first point is that many people still want to live in "large, vibrant cities," with the sudden changes in demographic shifts being only temporary. "After an exodus in 2020, population trends have returned in U.S. gateway markets," with "net migration now 17% lower … than it was in 2019." Multifamily absorption used to be 8.7% of inventory. Now it's 16.4%.
While remote and hybrid work resulted in people wanting to avoid commutes, the impact has largely "filtered through the system." The right-sizing of office portfolios will moderate. Occupiers are still committed to office even if there is more employee flexibility than pre-pandemic. "Centralized, urban office locations" are seen as the "best option for their workforce."
Top-tier office is in demand, though there isn't enough of it. "The supply-side is quickly unwinding, and new office deliveries will be historically low in the middle of this decade." Expect less new construction and more renovation of existing assets, which could reduce the amount of obsolescence. In 40% of U.S. markets, central business district vacancies are lower than those in suburbs.
Many younger workers want to work in central offices for career development and connection. "To appeal to workers of all ages, the office experience should focus on sustainable practices, superior technology and inviting amenities," they write.
With all the office bad news, one could assume that all the use was crumbling and collapsing. But the company notes that while office employment was down in the second half of 2023, it remained 1.9 million jobs above the pre-pandemic level, a remarkable situation. "Once it resumes growing, look for occupiers to need more office space for their growing workforces," they say.
"As we adapt and recover, we're seeing some bright spots for urban office markets," said Smith. Occupiers and employees are adjusting, supply is adapting, and the economy will create jobs in the coming years." said David Smith, head of Americas Insights at Cushman & Wakefield, in prepared remarks. "Occupiers and employees are adjusting, supply is adapting, and the economy will create jobs in the coming years."
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